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Minimum wage deal with automatic pay hikes: the horse trading

Rep. Ryan Winkler
MinnPost photo by Briana Bierschbach
“You can’t take the politics out of the decision like this entirely,” said DFL Rep. Ryan Winkler.

This is one in a series of articles funded by a grant from the Northwest Area Foundation.

Labor unions and House Democrats were triumphant on Monday when DFL legislative leaders announced they had struck a deal on minimum wage. After a year of rallies, weekly phone banking, door knocks and lobbying, not only did advocates win their preferred wage increase to $9.50 per hour, they convinced hesitant Senate Democrats to index that wage to inflation each year.

But the final indexing deal hinged on a number of caveats, caps and delays that could cause trouble in the future, including a provision that allows governors to scrap indexing for up to a year at a time if they think the economy faces a “substantial” downturn.

Two Republican candidates for governor already say they will eliminate indexing if they’re elected this fall.

“You can’t take the politics out of the decision like this entirely,” said DFL Rep. Ryan Winkler, the author of the House minimum wage proposal. He pushed hard all session for a minimum wage bill that included indexing, rejecting several Senate proposals that came back without the provision.

“I hope this is focused on when it needs to happen for purely economic reasons.”

Indexing ‘off ramp’

Winkler said the idea behind this so-called “off ramp” for indexing isn’t so that governors can exercise their political preferences on labor policies.

Under the terms of the deal, any commissioner of the Department of Labor and Industry would have to review economic data — like GDP growth and the unemployment rate — and hold a public hearing before they can suspend indexing for a year. If the economy improves, indexing can be reinstated. 

Winkler points out that there’s also an “accelerator” in the bill, which means governors can choose to not only reinstate indexing the wage, but also catch it up to where it would have been if indexing hadn’t been suspended in the first place. 

While no commissioner can lower the wage under the proposal, it could mean dramatic spikes in the state’s minimum wage between administrations. 

“I would like to have the decision … be one based on actual real data, not based on the politics around the House and the Senate here in the Capitol,” said Senate Majority Leader Tom Bakk, who noted that that measure and other changes to indexing were critical in winning 34 votes in his chamber.

Rural and suburban Senate Democrats have been concerned businesses can’t absorb both the wage hike and indexing in tough economic times.

“The indexing provision needed to be able to respond to future economic downturns, which will come,” Bakk said. “It makes a significant difference in our willingness to be able accept inflation.”

But Republican legislators Kurt Zellers and Dave Thompson, both candidates for governor, say they’d get rid of indexing if they win this fall.

Thompson said indexing is bad policy, but so is leaving that decision up to the executive branch.  

“I thought they were going to put it on autopilot and they’ve done something maybe even worse, and that’s just put it at the whim of the executive branch,” Thompson said.

“I would do what’s in the best interest of the state economically, but I would also support legislation to take that power away from the executive. The Legislature should be responsible for those kinds of things. That’s why people elect representatives locally in the House and the Senate.”

Indexing caps, delays

The most recent compromise handed to the Senate Democrats on minimum wage started indexing the wage to inflation in 2017 and capped any increases at 3 percent. Senators rejected that offer. In the final deal announced Monday, indexing won't start until January 2018 and increases will be capped at 2.5 percent in any given year.

“We are concerned about our minimum wage walking away from surrounding states that aren’t likely to ever have inflation,” said Dan McElroy, head of a restaurant advocacy group and the former commissioner of Employment and Economic Development under Republican Gov. Tim Pawlenty.  His group was part of a chorus of business opposed to major changes to the state’s minimum wage laws.

“If you insist on doing that, having a limit and an off ramp are prudent public policy,” he said. 

Minimum Wage: Too low or too costly?The cap means the wage couldn’t go higher than $9.74 in the first year that indexing is allowed.  The wage will also be indexed using the implicit price deflator, a historically lower measure of indexing that the more common Consumer Price Index (CPI).

Both measurements look at the price of goods and services in a given year, but while the CPI is based on a fixed basket of goods and services, the implicit price deflator can change each year based on people’s consumption patterns.

University of Minnesota economics professor Aaron Sojourner says the 2.5 percent cap could be “binding.” In other states that use indexing, it’s more common to cap the increase at 3 percent.

“In the last decade the implicit price deflator has gone up more than 2.5 percent, so if this policy had been in place then it would have been binding,” Sojourner said.

However, Sojourner said using the implicit price deflator is probably a better way to go overall. CPI tends to focus on only urban consumers and doesn’t take into account real-time changes in spending. 

“It seems like it really is a compromise,” Sojourner said, evaluating the indexing deal. “It’s not what either side wanted.” 

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Comments (27)

It is Only Money

The citizens of MN will pay more for products to support the government imposed minimum wage, so the Democrats can buy some more votes.

And the citizens of MN will pay more in taxes to provide the Senate with additional office space, even though we have not added any personnel to the Leigislature".

Seems like the horse trading worked out well for the DFL and the Senate...

Yawn...

I'll toss the "buy more votes" meme along with other tired GOP rhetoric such as "free stuff" and "low information voter" into the appropriate circular file.

Pragmatic Comment

The DFL has given a pay raise to part of their core constituency. I would think that may buy some votes. Just like when they aligned the MN tax code with the Feds, except where it would help married couples of all income levels. Or when they pass property tax relief that help the lower income folks. They have been very busy this session trying to sway this Fall's election.
http://dailycaller.com/2013/02/18/unions-to-see-benefit-from-higher-mini...

Just as the GOP supposedly does when they give us all tax cuts.

It will be interesting to see how the voters react to the above changes this Fall...

My guess is that the voters will react favorably.

After all Minnesotans are overwhelmingly in favor of an increase in the minimum wage, and even Republicans and independents favor this move.

You could look it up, but I will save you the trouble:

Minnesota Poll: Majority supports raising state minumum wage
link: http://ow.ly/vA6Zj

Majority?

To me it looks like 53% wanted it unchanged or only raised to $7.50. And 41% wanted it raised to $9.50. (no mention of inflation adjustment either way)

"About 41 percent of Minnesotans said they would like to see the current wage floor jump to $9.50 an hour and 28 percent said they would like it to go up to $7.50 an hour. A quarter of Minnesotans said it should remain where it is." Star Tribune

So where did you get the "overwhelming majority" idea?

Seriously, John?

53 + 41 =
41 + 28 =

Only 1/4 of Minnesotans said it should remain where it is.

Sound like an overwhelming majority to me ...

Federal Min Wage

Raising it to about the Fed Min Wage wouldn't really be raising it.

And it is definitely is a far cry from $9.50 + inflationary increases...

We will find out this Fall.

Right....

because when I look for credibility, I always turn to Tucker Carlson.

Workers World

The Citizens of Minnesota

Will benefit from having a bit more money to spend as will the places of business where they'll spend it. The additional taxes paying for the senate office building will not make an appreciable difference in the lives of average people (although those who are tax phobic will continue to whine about it).

At least the people whose wages will be increased by this minimum wage increase actually WORK for a living,...

as opposed to those fabulously wealthy individuals who have extracted from the rest of us a MASSIVE increase in their own compensation over the past few decades without doing a single thing,...

except schmoozing with politicians and indirectly padding those politician's pockets by contributing to their campaigns,...

with the clear understanding that, should those politicians displease those wealthy campaign contributors, those contributions will disappear,...

but, of course, THAT's not "corruption" at all, is it?

More like an old-fashioned protection racket along the lines of "Nice political career you've got here. It'd be too bad if something happened to it, wouldn't it?"

Lets See

Wages go up so costs go up... The low income minimum wage folks will make more and we will all pay more. My guess is the fixed low income and lower middle class folks will notice it most.

I am pretty sure my teenage daughters will greatly appreciate the higher income. Though they certainly didn't need it. However one can never have enough shoes... Right...

Then of course there is the automation factor, companies now have another $2/hr to cost justify replacing people with machines. At ~1800 hrs per year, that means they have $3,600/yr additional. I wonder how many more applications can be found for vending machines like those used by redbox, best buy, etc. I am thinking Movie Theaters are ripe for changes, all those teenagers selling candy and drinks.

As for the office building - What am I missing? At least the new stadium will be used by "the people"

In our world of computers/efficiency gains, outsourcing of some functions, etc, why again does our government need more office space?

I don't think we have added head count in "elected positions". What am I missing?

Are they using the Capitol for document storage?
Are the staff's for these people getting excessive?
What am I missing?

You're missing

the fact that prices have gone up without wages increasing. From 1973-2011 worker productivity grew by 80% while median hourly wage grew by 1/8th that amount. Low wages haven't kept prices from rising, nor has it halted any company from investing in new technology...so spare me your tears at the prospect of paying an extra dime for your taco. Now, maybe the kid making it can actually afford to buy a couple of them.

No Biggie to Me

As I have said before, I won't even notice it. But I am pretty sure the fixed income folks will feel it.

What am I missing?

Assuming the question is sincere, consider the following:

But given nearly 40 years of partisan resistance to the idea of providing suitable office space for every senator, the Senate panel would be foolish not to gratefully go along with the House's version.

A new, unified Senate office facility fixes a problem that dates to Coleman's era. Legislators didn't have offices of their own before 1975, when annual sessions, open meeting laws and more professionalization threw the institution's doors open to public participation.

Senators have been scattered in the Capitol and State Office Building since then. The arrangement is hard on citizen lobbyists, especially the elderly and disabled. It doesn't do anything positive for lawmaking efficiency or collegiality, either. The Capitol's renovation is poised to make matters worse, shrinking from 45 to 23 the number of senators that the Capitol can accommodate.

source: Star-Tribune, Laurie Sturdevant
http://ow.ly/vA6vV

You're welcome.

More Offices for Part Time employees

Thank you for the clarification. Though I would truly hope we would have fewer mouths to feed in government as the technology improves, not more.

So why did the problem not exist before the Coleman era?

I just think of it as another "make work" project like the new stadium. Kind of like the ultra huge bonding bill that our kids will be paying for.

So why did the problem not exist before the Coleman era?

Please read third paragraph of my comment above.

Interesting

So they did not have enough "open mtg" rooms? Or they needed bigger private offices for talking to constituents?

I would think WEB casting would fulfill the open mtg laws, or do they need to provide audience seating.
And often us cubicle livers just go to a conference room if we need to have a private meeting.

I guess my point is that what would pressure politicians and other public personnel to make do with less, when they can just pass a bonding bill? We seems to be paying for a boatload of beautiful campus, city, county and state buildings.

I remember the story of what an employee said about a beautiful new horse barn at elm creek park. "The old one was okay, but we would had the funding to rip it down and rebuild it... And we did not want to lose the money."

Question

I want to have a simple question answered by minimum wage increase supporters - anyone, including a governor or Rep Winkler:

How come Oregon and Washington State have higher unemployment and poverty level than Minnesota while their minimum wage is much higher than Minnesota's? Yes, they do have poverty level higher than in Minnesota, you read it correctly!

I don't think anyone can vote for the minimum wage increase until this question is answered.

You might want to have a look at this:

The Impact of Increasing the Minimum Wage on Unemployment: No Evidence of Harm
link: http://ow.ly/vAdQt

I'll also point out that states - eg South Carolina - have higher poverty level than Minnesota and higher unemployment even though their minimum wage - in this case there is none - is lower than that of Minnesota's.

see for example:
minimum wage by state http://ow.ly/vAe7H
unemployment rate by state http://ow.ly/vAef4
household income by state http://ow.ly/vAeEn

It is a complex problem not amenable to analysis by plotting minimum wage versus unemployment or some measure of poverty.

I believe that there is enough evidence that catastrophe will not ensue, to justify a rise in the minimum wage in Minnesota. But, apparently, we shall see.

pay raise for hourly workers?

what makes any one think this is about raising the wages
of hourly workers?
the bill should be called the state employee wage increase bill.
do you know how many unionized state employee contracts
base wages are directly tied to the minimum wage?
all of them i think.(could be wrong)
so where is that money going to come from?
i know,iknow,i know,lets tax the snot out of e-cigarettes
which are worse than regular cigs,advertise to and
poison our children,and threaten the very foundation
of the health of our citizens with 2nd,3rd,and 4th hand water vapor.

Comparison

First of all, Minnesota and South Carolina have exactly the same minimum wage - a federal minimum wage.

Secondly, Minnesota has much more in common with Oregon and Washington State (demographics, economics, education) than with South Carolina so it makes more sense to compare similar states.

It is a complex thing but the only this comparison shows is that raising minimum wage will not reduce poverty which, I assume, the main goal of the supporters, at least the stated goal.

Let's just say that it is a little more complicated than that

Here is a link for the Minnesota situation:

State minimum-wage laws -- Labor Standards; Minnesota Department of Labor and Industry http://ow.ly/vCWfT

The bottom line is that there are a lot of ifs, ands, or buts. Simply put the minimum wage in South Carolina and Minnesota are not equal and are not simply the federal minimum wage.

You are claiming that raising the minimum wage will not reduce poverty? I don't see that you have proven this. In fact simple arithmetic indicates that it will.

Maybe

It should reduce the amount of benefits these "low income permanently on minimum wage" households receive from tax payers. However will it really change their "household income"?

Make more at work just to receive a smaller EITC? Or less SNAP?

That's why I see it a bit counterproductive. SNAP, EITC, etc are funded by the "the rich" (ie income tax payers) whereas everyone will fund the higher minimum wage. Including the poor.

I think you are on the wrong track

in your simplistic arguments, John. As usual the problem is more complex than you seem to realize.

For a thorough analysis, I suggest:

The Effects of a Minimum-Wage Increase on Employment and Family Income -
Congressional Budget Office
http://ow.ly/vE3aH

A point in favor of NOT increasing the minimum wage is its effect on unemployment for low wage workers.

" the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers."

______________

Obviously this unintended consequence may need attention in the future.

But, if putting more money into the economy ("growth" in GOP parlance) is a valid stimulus, then the possible unemployment bump may not occur.

More money

Where is this additional money coming from?
This would infer that raising the minimum wage is going to make "new money" appear in the economy. Where it is more likely that we will all pay a little more for everything. Meaning we will have less to spend on something else.

Where is the money going? (ie domestic or overseas spend)

Definitely a very complicated issue, so many interelated systems and consequences.

Really, John, this is getting a little tiresome

"Where is this additional money coming from?"

This question you could easily have answered by using Google, or perhaps your noodle? I have spent about enough time on you for the day, but as a parting present:

Let's Call This Offer To Raise The Minimum What It Is: A Massive Stimulus Package - Business Insider
http://ow.ly/vEK3I

"it's crucial to call the minimum wage hike what it really is: a comprehensive, dispersed stimulus package that doesn't cost the government a dime.

A February 2011 study from the Federal Reserve Bank of Chicago analyzed the impact of a $1 increase in the minimum wage on spending behavior from those affected. "

"As much as President Obama painted the minimum wage hike as a moral issue, the reality is much more complex. Following a minimum wage increase, durable goods manufacturers will see increased revenues derived from the new liquidity in the market, having similar impacts as a stimulus.

This is a very good paper with lots of data, not anecdotes or supposition.

I recommend you read it.

Bye for now.

I read the Article

The writer really doesn't explain where this magic money is coming from, though he does state is not from the government. Apparently it just appears. Probably why he is a "politics" reporter.

I whole heartedly agree that increased wages will increase the spending of those who get the raises, and that there will be some extra activity in that sector... However the money is coming out of someone else's pockets, who won't be spending or investing it anymore.

Here is an alternate view.
http://www.forbes.com/sites/jamesdorn/2013/05/07/the-minimum-wage-delusi...